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HomeMy Public PortalAbout28-C-B-5a Commitment Letters - 1 - Truckee Development Associates, LLC 1201 Pine Street, Suite 151 Oakland, California 94607 t: 510 547 2122 f: 510 547 2125 Exhibit C-B-5: Funding Commitments RE: HCD Prop 1c IIG 2013 August 5, 2013 Please see the attached letters from various financial partners committing to finance the QIP. Project Cost Total QIP development cost: $19,505,443 Total CIP cost: $5,045,376 (double counted funds*) -$500,000 (deferred fees) -$1,000,000 Total project cost $23,050,819 90% $20,745,737 Committed Financing HCD IIG Funds $4,000,000 Town of Truckee Traffic Impact Fees $1,000,000 Boston Financial (tax credit investor) $9,196,095 Chase Bank construction and perm $5,347,711 TDA equity contribution $1,545,376 Total committed financing $21,089,182 * $500k of CIP cost including sidewalk curb and gutter, utility laterals and meters, joint trench, and other utility capital costs directly attributable to the QIP are counted as project costs in the CIP budget consistent with TCAC guidelines. Boston Financial Investment Management, LP a Limited Partnership 1801 Century Park East, Ste 2200 Los Angeles, CA 90067 T: 310.860.1321 F: 617.790.4428 www.bfim.com August 12, 2013 Mr. Rick Holliday Truckee Development Associates, LLC 1201 Pine Street, #151 Oakland, CA 94607 Re: Truckee Railyards Truckee, NV Dear Rick, We appreciate the opportunity to become the investment partner in Truckee Railyards (the “Property”). This letter of intent (“LOI”) summarizes the proposed investment terms and conditions by which a limited partnership or limited liability company formed by Boston Financial Investment Management, LP (“Boston Financial”) would acquire an interest in the Partnership (as defined below). As further detailed in Section 2.2 below, BFLP (as defined below) would proceed to make capital contributions to the Partnership of approximately $9,196,095 or the equivalent of $0.95 per each dollar of federal tax credit. 1. Project Assumptions We have made the following assumptions in evaluating this investment: 1.1 Development Structure  The Partnership. Truckee Railyards Artist Housing, LP, a California limited partnership (the “Partnership”) has been formed to acquire, develop, rehabilitate, own, and operate the Property.  Investor and Special Limited Partners. An entity affiliated with Boston Financial (“BFLP”) will purchase a 99.99% limited partnership interest in the Partnership (“Admission”) upon satisfactory completion of the conditions contained in this LOI. A corporation affiliated with Boston Financial will be a special limited partner in the Partnership with certain restricted management rights and a small interest in sale proceeds (the “Special Limited Partner”).  General Partners. The General Partners of the Partnership will be Truckee Railyards, LLC, a for-profit entity (the “Administrative General Partner”) and a to be named non-profit entity (the “Managing General Partner”). The Administrative General Partner will be primarily responsible for the Partnership and its obligations, however, the Managing General Partner will have certain established responsibilities necessary for the Partnership to obtain a real property tax exemption for the Property. The respective duties of each General Partner will be set forth in the Partnership Agreement.  Developer. The Property will be developed by CFY Development, Inc, an affiliate of the Administrative General Partner (the “Developer”). Truckee Railyards August 12, 2013 Page 2  Guarantor. The obligations of the Developer and General Partners must be guaranteed by an entity and/or individual(s) (collectively, the “Guarantor”) acceptable to Boston Financial. The Guarantor must maintain sufficient net worth and liquidity to meet its obligations (but in no event less than $5 million of net worth and $1 million in liquidity). Boston Financial will have the right to accept or reject the Guarantor in its sole discretion based on a detailed review of the Guarantor’s financial statements.  General Contractor. The general contractor will be an entity acceptable to Boston Financial. Construction and must be fully bonded or secured by a letter of credit equal to 15% of the construction contract.  Management Agent. The Property will be managed by an entity acceptable to Boston Financial (the “Management Agent”). The Management Agent (i) will have demonstrated experience managing Section 42 properties and (ii) will receive a competitive management fee, which shall not exceed the lesser of 7.0% of effective gross income or the maximum amount permitted by any lender. If related to a General Partner, the Management Agent will enter into an agreement to defer and accrue its fee, if necessary, to prevent (i) a default under the mortgage loan documents and (ii) to avoid an operating deficit. Breach of this agreement will be grounds for removal of the Management Agent. 1.2 Property  The Property will be developed as an acquisition and rehabilitation and will consist of 81 units of family housing. 1.3 Financing* Type Lender Amount Rate Fixed Rate? Term Amort Hard Payments? Const TBD $11,111,926 5.00% No 24 mos N/A Interest only Perm Bonneville $6,674,650 7.00% Yes 360 360 Yes Const Perm Def City Impact Fees $1,000,000 TBD TBD TBD TBD No Const Perm City RDA $1,000,000 TBD TBD TBD TBD No Const Perm Incl. Land Contr. $1,500,000 AFR N/A N/A N/A No Const Perm HCD Infill Funds $135,000 TBD TBD TBD TBD No * In no event will the hard debt be underwritten to a debt service coverage ratio of less than 1.15x. All mortgages will be considered partnership non-recourse financing. All mortgages will be considered basis eligible. 1.4 Reserves All required reserves are expected to be funded prior to or by the Stabilization Installment.  Operating Reserve. An Operating Reserve in the amount of $193,039 will be held in a tax-exempt account. This value represents approximately 3 months of operating expenses, reserve payments, and required debt service. The amount of the Operating Reserve is subject to BF’s investor’s approval. The Operating Reserve will be used to Truckee Railyards August 12, 2013 Page 3 fund operating deficits of the Partnership as described in Section 3.2 below subject to Boston Financial’s approval. The reserve may be released upon the expiration of the Compliance Period. 2. Tax Credits and Capital Contributions 2.1 Tax Credit Assumptions  The Partnership will receive a reservation of Federal LIHTC for the Property in the amount of $968,010 per annum.  This LOI assumes that 9.00% is the applicable credit rate for the LIHTC. 2.2 Capital Contributions Based upon the assumptions that you submitted and subject to the satisfactory completion of Boston Financial’s due diligence, BFLP will make capital contributions to the Partnership in the aggregate amounts and at the times shown below: Installments are due only after the prior installment’s conditions have been met. Installments may be adjusted based on actual or projected tax credit delivery schedules as prepared by the Partnership accountants. 2.3 Capital Adjusters The installments of equity shall be subject to standard tax credit timing and steady state adjuster calculations subject to the availability of funds. Downward Basis. For the annual, steady state amount of LIHTC, for each dollar of federal credit delivered to BFLP which is less than $968,010, the capital contributions will be reduced by $0.95 (for the total credit period). If there are not sufficient remaining installments, the amount will be Payment Conditions Amount % Dev Fee % Reserve 1 Later of Admission or Construction Start $2,758,82930% $200,000 10% $0 2 100% Construction Completion $3,678,43840% $200,000 10% $0 3 Final Closing Installment: (i) 100% Initial Qualified Occupancy confirmed by tenant file review, (ii) submission of 8609 applications (acceptable to Boston Financial), (iii) Final Closing (defined below), (iv) Tax Credit Determination (defined below), (v) cost certification (acceptable to Boston Financial): $1,839,21920% $680,390 34% $193,039 4 8609 Installment: (i) the Stabilization Date, (ii) receipt of 8609(s) $919,61010% $919,610 46% $0 Total $9,196,095 100% $2,000,000 100% $193,039 Price Per Federal LIHTC $0.95 Truckee Railyards August 12, 2013 Page 4 due within 30 days and any unpaid amount will be increased by an interest rate of 10% commencing on the date of Admission plus any penalties payable by BFLP or its partners. 2.4 Development Fee The Developer is projected to earn a total development fee of $2,000,000. The actual amount of the total developer fee may increase subject to the approval of Boston Financial. If any portion of the fee (“Deferred Development Fee”) is outstanding after payment of all installments of equity, the payment of any such Deferred Development Fee will be subject to available cash flow and may bear interest, if acceptable to Boston Financial, based on its review of tax implications associated with the fee. The Administrative General Partner shall be obligated to pay any amount of outstanding Deferred Development Fee prior to the end of the thirteenth anniversary of the date the Property is placed in service. 3. General Partner Obligations The General Partner and Guarantor will have the following obligations. 3.1 Development Obligation. The Developer is obligated to (i) deliver a completed, lien-free project (including all final Certificates of Occupancy and an ALTA as-built survey), in accordance with the plans and specifications based upon fixed development costs including funding of development fee and all required reserves and (ii) arrive at Final Closing (as defined below). If the proceeds available are insufficient to pay all Eligible Development Costs, the Developer shall advance to the Partnership such funds as are required to pay such deficiencies through the latest of the date the Property achieves (i) the first anniversary of Completion, (ii) Final Closing, (iii) Stabilization Date, and (iv) the receipt of final Forms 8609s from the allocating agency for each building in the Property (the “Development Obligation Date” or “DOD”). The Administrative General Partner will be obligated to guaranty this obligation and any cost overruns, development deficiencies or loan conversion gaps not paid for by the Developer shall be paid by the Administrative General Partner and will be without reimbursement. “Stabilization Date” means the first day following the three most recent consecutive calendar months commencing on or after Final Closing, during each of which, as determined by the Accountants, subject to reasonable review by Boston Financial, the Project has achieved a Debt Service Coverage Ratio of 1.15. “Final Closing” means the date upon which all of the following events have occurred: (i) the Completion Date, (ii) Permanent Mortgage Commencement, (iii) the Property being free of any mechanics’ or other liens (except for the Mortgages and liens either bonded against in such a manner as to preclude the holder thereof from having any recourse to the Property or the Partnership for payment of any debt secured thereby or affirmatively insured against (in such manner as precludes recourse to the Partnership for any loss incurred by the insurer) by the Title Policy (or by another policy of title insurance) issued to the Partnership by an acceptable title insurance company in an amount satisfactory to Investor Tax Counsel (or by an endorsement of either such title policy)), (iv) the completion by the Accountants of a certified audit, approved by the Investor Limited Partner, of the Partnership’s and theGeneral Contractor’s construction costs as a part of cost certification, (v) the agreement and acceptance of such cost certification by (a) Boston Financial and (b) by the Lenders and the Governmental Agency to the extent required by the Lenders and the Governmental Agency, (vi) the date of delivery to and acceptance by Boston Truckee Railyards August 12, 2013 Page 5 Financial of an As-Built Survey, (vii) the disbursement of proceeds under the Mortgage Loans has been made in the full amount permitted by such cost certification, (viii) all amounts due in connection with the construction of the Project have been paid or provided for, and (ix) the full funding of any reserves required under the Mortgage Loan Documents and the Partnership Agreement (except for any reserves to be funded from future installments or other identified sources). “Tax Credit Determination” means the date the Accountants determine the amount of the Tax Credits, and determine that the Project satisfies the requirements of Section 42(h)(4) of the Code. 3.2 Operating Obligation. Commencing on the date of Admission, the Administrative General Partner will be obligated to advance funds needed to cover operating deficits (including taxes, debt service, mortgage loan insurance, full replacement reserve funding acceptable to Boston Financial, and, after the DOD, normal repairs and necessary capital improvements) such that the Partnership has $1 of surplus cash at all times. The Administrative General Partner’s obligation will be unlimited through the end of the Compliance Period and such advances will not be reimbursed and treated as Special Capital Contributions prior to the DOD and subsequent to the DOD will be treated as Operating Expense Loans, which will bear no interest and will be repayable solely from future available cash flow or sale proceeds. Notwithstanding the above, the Guarantor's guaranty of the Operating Obligation will be unlimited from Admission through the DOD. Commencing on the DOD said guaranty shall be limited to $396,203; provided, however, in no event will such amount be less 9 months of operating expenses, reserve payments, and required debt service. The Guarantor's guaranty of the Operating Obligation shall terminate upon the later of (i) the fifth anniversary of the DOD or (ii) the Property achieving a 1.15 DSCR as confirmed by audited financial statements, acceptable to Boston Financial, for the most recent fiscal year. Any operating deficits must be funded by the Guarantor under the terms of its operating obligation guaranty prior to the use of any operating reserves. 3.3 Repurchase Obligation. The Administrative General Partner will be obligated to repurchase BFLP's interest in the Partnership, for a price equal to 100% of the Net Capital Contribution payable to the Partnership less amounts not yet paid into the Partnership, plus 7.0% interest from Admission plus any interest or penalties from recapture, if (1) Final Closing of the mortgage loan is not achieved by the maturity date of the construction loan (subject to an extension if existing loan commitments are similarly extended), or (2) at any time before the DOD (a) an action is commenced to foreclose, abandon, or permanently enjoin construction of the Property, (b) the Property is disqualified from obtaining 30% or more of the tax credits, or (c) other significant issues occur which materially impact BFLP’s investment as agreed to in the Partnership Agreement. For a limited period of time, the Partnership will have an opportunity to cure any such problems. 3.4 Compliance Obligation. The General Partners shall take any and all actions required to ensure that the Property will continue to qualify for low-income tax credits. 3.5 Tax Credit Adjusters. The Administrative General Partner shall be obligated to fund the adjustments to the capital contributions resulting from a reduction in the credit amount as noted above. Truckee Railyards August 12, 2013 Page 6 3.6 Management Rights. The consent of Boston Financial will be required to: (a) sell or refinance the Property, (b) withdraw, admit, or substitute a General Partner, or (c) sell, assign, encumber, or pledge the general partnership interests. In addition, (a) in the event the General Partner files for bankruptcy, (b) if the Partnership or any General Partner are in material default under their commitments and obligations, or (c) in certain other circumstances, BFLP after reasonable notice and cure period will have the right to remove a General Partner and substitute the Special Limited Partner or another affiliate of Boston Financial as a successor general partner with the powers of managing general partner. 3.7 General Partner Standard Obligations, Representations, and Warranties. The General Partners will be responsible for all customary General Partner obligations and indemnifications and for the accuracy of all customary representations and warranties to the Partnership and BFLP. We have assumed that there are no existing environmental issues affecting the site or project. 4. Allocation and Distributions The tax credits, depreciation, and operating profits and losses of the Partnership shall be allocated 99.99% to BFLP, 0.005% to the Managing General Partner and 0.005% to the Administrative General Partner. With respect to taxable income, we have assumed a 27.5 year depreciation schedule for building improvements, 15 years for land improvements, and 5 years for personal property. Cash flow from operations after payment of operating expenses, debt service, and funding of required replacement reserves shall be distributed as follows: First, to BFLP to pay its annual cumulative Priority Distribution (Asset Management Fee) of $8,100, with 3.00% annual increases; Second, to BFLP an amount equal to any unpaid tax credit shortfall payments; Third, to the repayment of any Voluntary Loans (from a partner) then outstanding; Fourth, to the payment of the Social Services Fee if any (payable to the Managing General Partner); Fifth, to the Developer as payment of the Deferred Development Fee; Sixth, to the General Partners to repay any Operating Expense Loans; Seventh, 0.005% to the Managing General Partner, 89.995% to the Administrative General Partner (first as an Incentive Management Fee not to exceed 7% of effective gross income, and thereafter as a distribution) and 10% to BFLP. Truckee Railyards August 12, 2013 Page 7 Net proceeds of a sale or refinancing shall be distributed as follows: First, to discharge the debts and obligations of the Partnership; Second, to fund reserves for contingent liabilities to the extent deemed necessary by the General Partners; Third, to BFLP an amount equal to all federal, state and local taxes, including without limitation, income taxes, to be incurred by BFLP from the sale or refinancing; Fourth, to the General Partners to repay any Operating Expense Loans; Fifth, to the repayment of any outstanding Deferred Development Fee; Sixth, to BFLP any cumulative annual Priority Distribution plus any adjustments with respect to the tax credits, 1.5 times any shortfall; Seventh, $10,000 to the Special Limited Partner; and Eighth, 0.005% to the Managing General Partner, 89.995% to the Administrative General Partner and 10% to BFLP. 5. Reporting The Partnership shall furnish Boston Financial with quarterly unaudited financial statements. Annual audited financial statements and tax returns shall be prepared by an independent firm of certified public accountants, approved by Boston Financial, familiar with reporting requirements applicable to LIHTC properties under a timetable to be specified in the Partnership Agreement. Annual tax returns shall be provided by February 15th and annual audited financial statements by March 1st. 6. Due Diligence and Closing Process Upon receipt of an executed copy of this letter, the parties will agree upon a mutually acceptable due diligence period and closing schedule. Boston Financial’s decision to invest in the Partnership, the final terms of such investment and the admission of BFLP to the Partnership are subject to the satisfactory completion of Boston Financial’s due diligence process, including without limitation, review and approval of the following due diligence items: a) Engineering. All related due diligence, including all plans and specifications, the construction budget, and related construction documents. If property is to be rehabilitated this includes a Capital Needs Assessment, Replacement Reserve Analysis, and unit by unit inspection of 100% of the units, paid for by the Partnership, which will evaluate the construction scope of work, the construction documents and budget. b) Environmental. Phase I Environmental Report (ASTM 1527-05 Standards), the Phase II Environmental Report (if applicable), and completion of any work recommended therein. Boston Financial requires that all third-party reports provide reliance letters which are not limited in time or amount. c) Market Study. Boston Financial’s Market Study which will evaluate the Property’s suitability and marketability as a LIHTC property, including review of rents and expenses, the supportive services plan and funding sources, and its feasibility of operations in the absence of its USDA rent subsidy. d) Financial and Capacity Review. A satisfactory review by Boston Financial’s Chief Credit Officer of 1) the audited financial statements of the General Partners, Partnership, Truckee Railyards August 12, 2013 Page 8 Developer, Guarantor, General Contractor, and affiliates, and 2) the Statement of Real Estate Owned by the General Partners, Developer, Guarantor, and affiliates. e) Background and Credit Review. Backgrounds and credit worthiness of the General Partners, Developer, Guarantor, Property Management Agent, and General Contractor. f) Insurance. Receipt of a satisfactory insurance policy insuring against fire and other casualty in an amount equal to the full replacement cost of the Property. A combined single limit property damage and commercial general liability insurance policy in the amount of not less than $1 million per occurrence/$2 million aggregate with an umbrella policy of no less than $3 million. The primary limits must be on a “per location” basis and the Investor Limited Partner, Special Limited Partner, and Partnership are to be Additional Insured by Endorsement. g) A financial projection by Boston Financial or its designee which demonstrates that the buildup of debt does not cause a bona fide debt issue. h) Receipt of satisfactory commitments and form loan documents for construction and permanent financing. i) Site inspection by Boston Financial. j) ALTA Owner's Policy of Title Insurance. k) Acceptable partnership and tax opinions. l) Satisfactory negotiation and execution of all legal documentation required to consummate the transactions contemplated by this LOI. m) Approval of the terms of the investment by Boston Financial’s Capital Committee in its sole and absolute discretion and satisfaction of such other conditions as it may require. n) Accountants. The Partnership’s accountants shall be either Novogradac & Co., LLP or the Reznick Group. Any other accountant will require consent by Boston Financial in its sole and absolute discretion. 7. Costs, Expenses, and Legal Counsel In addition to any expenses that are the responsibility of the Administrative General Partner it shall pay Boston Financial a due diligence fee in the amount of $30,000 (the “Due Diligence Fee”). The Due Diligence Fee shall be payable upon Admission of BFLP from the first equity installment of BFLP to the Partnership. 8. Confidentiality and Exclusivity The General Partners, affiliates, and agents shall not disclose the terms of this LOI to any third party. The General Partners acknowledge that Boston Financial will incur certain costs and expenses in connection with its due diligence review. Upon execution hereof, unless this LOI is otherwise terminated, the General Partners, affiliates and agents, agree that they will not continue to market the Property to any prospective investors nor will they accept any competing offers made by any prospective investors to invest in the Property. 9. Governing Law This agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, except for any rule of such laws which would make the law of another jurisdiction applicable. The parties hereby agree that any suit, action or other legal proceeding arising out of this agreement shall be brought in the applicable courts of Suffolk County of the Commonwealth of Massachusetts or the courts of the United States located in Boston, Massachusetts. Truckee Railyards August 12, 2013 Page 9 10. Acceptance and Term The above are the general terms and conditions of the proposed transaction which are offered on a best efforts basis which is conditioned upon our ability to secure an investor. The consummation of this transaction is subject to satisfactory completion of the due diligence process, approval by Boston Financial’s Capital Committee in its sole discretion, and execution of all legal documentation to be drafted by Boston Financial’s counsel and negotiated by the parties. As a result, this LOI does not represent a firm commitment by Boston Financial to invest in the Property and does not create a legally binding obligation on Boston Financial to become a limited partner of the Partnership. Boston Financial’s obligations described in this LOI shall not become binding upon Boston Financial until Boston Financial and the ultimate investor have approved the investment in the Property and Boston Financial has been admitted to the Partnership upon terms and conditions described in the final closing documents approved by the parties and the investor. Developer, General Partners and their affiliates forever waive and hereby release Boston Financial and its affiliates from any and all claims arising from the failure to consummate the transactions contemplated by this LOI, including, without limitation, any claims for detrimental reliance, breach of contract, promissory estoppel and/or specific performance.